Suppose You Buy a Call and Lend the Present Value

question 3

Multiple Choice

Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by:

• A) Buying the underlying stock and selling a call
• B) Selling a put and lending the present value of the exercise price
• C) Buying the underlying stock and buying a put
• D) Buying the underlying stock and selling a put

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Definitions:

Machine-Hours

A measurement used in cost accounting to allocate expenses to products or job orders, based on the number of hours machines are operated.

Direct Labor-Hours

An indicator of the cumulative hours spent by workers directly engaged in the production process.

Estimated Total Manufacturing Overhead

The projected sum of all indirect costs associated with the production process, not inclusive of direct labor or materials.

Direct Labor-Hours

The cumulative hours spent by workers who are actively engaged in the production process.